FreedomWorks

Wayne T. Brough
Vice President for Research and
Chief Economist

February 25, 2005

Chairman Michael K. Powell
Commissioner Kathleen Q. Abernathy
Commissioner Jonathan S. Adelstein
Commissioner Michael J. Copps
Commissioner Kevin J. Martin

Federal Communications Commission
445 12 Street, Southwest
Washington, D.C. 20554

RE: WC Docket No. 03-266, Level 3 Communications, LLC, Petition for Forbearance Under 47 U.S.C. @ 160(c) from Enforcement of U.S.C. @ 251(g), Rule 51.701(b)(1) and Rule 69.5(b).

Dear Chairman Powell and Commissioners,

FreedomWorks, a 700,000-member grassroots organization that promotes market-based solutions to public policy issues, has several concerns regarding the Level 3 “Petition for Forbearance Under 47 U.S.C. @ 160(c) from Enforcement of U.S.C. @ 251(g), Rule 51.701(b)(1) and Rule 69.5(b)” (Level 3 Petition). Established in July 2004 through a merger of Citizens for a Sound Economy and Empower America, FreedomWorks has consistently pursued policies that foster free-enterprise and competition. FreedomWorks has been actively involved in a number of regulatory issues and has been particularly interested in technological advances and changes in the marketplace that bolster competition and consumer choice. In such instances it is critical that the regulatory framework adapt to the realities of the marketplace so that consumers are not unnecessarily restricted in their choices and that no competitors are treated preferentially. With respect to the Level 3 Petition, FreedomWorks urges the Commission to deny the Level 3 petition and address the critical issue of intercarrier compensation reform in the broader Intercarrier Compensation proceeding.

Given the potential benefits of the newly emerging competition in the market for telecommunications, it is important that the FCC’s policies foster the competition that is, in fact, the spirit of the 1996 Telecommunications Act. Upon reviewing the Level 3 Petition, however, FreedomWorks has concerns that the petition for forbearance may adversely affect the development of the telecommunications market through the creation of new regulatory policies that benefit one technology relative to others. In addition, while the Level 3 petition purports to request forbearance, it is, in fact, simply requesting the limited application of one form of price regulation (reciprocal compensation) to particular technologies in the marketplace while others must comply with another price regulation (access charges). Not only does this distort market outcomes, but it also expands the regulatory regime by establishing a role for state regulators in the VoIP market.

With respect to the issue of forbearance, the Level 3 Petition appears more like preferential treatment for VoIP-initiated calls that terminate on the Publicly Switched Telephone Network than forbearance per se. The request is not to eliminate regulation, but to replace one form of regulation with another. Specifically, rather than operating under access charge regulations for intercarrier compensation, the Level 3 Petition requests that reciprocal compensation price regulations be used. In addition, the petition is limited to non-rural ILECs, another indication of preferential treatment for a particular segment of the market rather than true regulatory forbearance.

At the same time, the use of reciprocal compensation threatens to increase regulatory control over new VoIP technologies, contrary to recent FCC actions that attempt to avoid excessive regulation of this new technology. Our main concern is that reciprocal compensation establishes a strong role for state regulation of IP technologies, because reciprocal compensation prices are established by state regulatory authorities using the FCC’s TELRIC methodology. Yet the emerging market is clearly national in scope, and introducing a strong state regulatory role could impede the growth of this market to the detriment of consumers.

Consumers are best served by open and competitive markets. The Level 3 Petition distorts the development of that market while expanding the degree of regulation for VoIP technologies. In order to ensure that regulatory barriers do not distort or impede consumer choice in the emerging telecommunications market, FreedomWorks respectfully urges the Commission to deny the Level 3 Petition. This is not to say that Intercarrier Compensation reform is unimportant. To the contrary, reform of this outdated system is crucial, but it is better addressed in the Intercarrier Compensation proceeding.

Sincerely yours,

Wayne T. Brough